2 Discussions and 1 Journal article in APA format

Part-1: Conflicts between a company's management and its shareholders are usually referred to as agency costs and are borne by shareholders. Activist shareholders and increased corporate governance increasingly deal with agency-related conflicts, but these conflicts can be especially intense for shareholders of smaller, closely-held companies. Smaller companies can be subject to less-rigorous audits – depending on relationships with banks, customers and suppliers – and minority shareholders in closely-held companies are usually resistant to the only source of recourse, litigation, which can be expensive and risky.

"Your management team may be more willing to take on higher levels of risk, – operating, financial or investing – while your shareholders desire maximized returns in the form of capital gains and dividends. Shareholders are generally risk-averse, which is viewed as prudent and conservative. If your management team receives a large portion of its compensation in annual salaries and stock options, managers have less to lose because salaries are constant, and stock option values rise in response to increased volatility, a form of risk."(Robert, 2019)

"Your shareholders desire minimized taxes, as opposed to maximization of shareholder wealth. Management teams sometimes exploit this by setting salaries in excess of industry norms, presumably because compensation expenses are tax deductible and lower taxable income."(Robert, 2019)

It can be difficult to balance the return requirements of your shareholders with different long-term goals and tax situations. Your business could also form a plan that comes at the expense of shareholder returns. 

"Common examples fueling these decisions include concern about leaving a legacy, engaging in “empire building," which involves acquiring companies at a fast pace, even if it involves taking on too much debt, or sacrificing profitability."(Robert, 2019)

Part-2: The time value of money is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. Time Value of Money is also sometimes referred to as present discounted value.

We all know that if we deposit money in a savings account, it will earn interest. That is why we prefer receiving money now than the same amount at a future date.

Time Value of Money is important in financial management. TVM can be used to compare different investment options and to solve problems involving mortgages, leases, loans, savings and annuities.

"Time value of money is based on the idea that people would rather have money today than in the future. Given that money can earn compound interest, it is more valuable in the present rather than the future. The formula for computing time value of money considers the payment now, the future value, the interest rate, and the time frame. The number of compounding periods during each time frame is an important determinant in the time value of money formula as well."(James, 2020).

"Example: Imagine you lent a friend $1,000 and he paid you back today. You immediately deposit that money into an account that earns 7% annually. It will be worth $1,070 in exactly one year’s time.

If, on the other hand, you received the $1,000 in one year’s time, it would only be worth $934.58 ($1,000 ÷ 1.07), assuming a 7% annual interest rate.

If you asked people whether they would prefer to receive $1,000 now or that amount in one year’s time, they would probably all say they wanted it now, for several reasons:

- They want to be sure they get the money. Waiting a year increases the risk of not getting the money.

- They may want to go out shopping or go on vacation soon, and that money would be useful.

- If they invested that money today in a deposit account, the $1,000 would be worth more in one year’s time. They are aware of the Time Value of Money.

A key concept of TVM is that a series of equally, evenly-spaced installment payments or a single lump sum, or receipts of future pledged payments can be converted to an equivalent value now.

One may also determine the whole thing the other way round, the value to which one single sum or a series of future payments will have appreciated at a future date."(Market Business News, N.A).

Reference: 

- Shaftoe, Robert. (2019, January 25). Conflicts Between Corporate Management and Shareholders. Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/conflicts-between-corporate-management-shareholders-75063.html.

- Chen, James. (2020, January 24). Time Value of Money (TVM). Investopedia Website Retrieved from https://www.investopedia.com/terms/t/timevalueofmoney.asp.

- Market Business New. (N.A). What is time value of money? Definition and examples. Market Business News Website. Retrieved from https://marketbusinessnews.com/financial-glossary/time-value-of-money/.